Ah, landlord insurance. It can be like a trophy wife: expensive, difficult to understand and what you get is not guaranteed. So, do you really need it? And if so, what kind?
We’ll look at four main types of insurance that are relevant to you as a landlord:
- Buildings insurance
- Contents insurance (if your property is let furnished)
- Rent guarantee insurance
- Landlord liability insurance.
It’s vital to have the right buildings insurance, which covers the structure of your property against fire, subsidence, floods and extreme weather. This is a condition of any mortgage, but even if you own outright, it’s a risk not worth taking. Without cover, you stand to lose it all – and you’d still have to pay the mortgage.
Very important note: your normal home insurance is likely to be invalid if you let out your property. Check with your insurer that you have the right policy.
Good landlord buildings policies also cover the loss of rent and temporary accommodation (for example, if a flood makes the house uninhabitable).
For a flat or leasehold property, the freeholder normally takes out buildings insurance. Ask them for a copy of the policy. Your lease will usually require you to tell your freeholder before you rent out your flat. Some also want the name and contact details of the tenants, as well as a copy of the tenancy agreement.
» How much should I insure my building for?
Buildings insurance pays to repair or knock down and rebuild your property if it were to burn, subside or be damaged by extreme weather. The sum you’re insured for is not the same as the property’s market value; in fact, it’s usually lower. It’s your responsibility to double-check the sum is correct. If in doubt, ask a chartered surveyor – find one at ricsfirms.com. Over-insuring for more than the rebuild cost will not make a difference to any claim but will push up your premiums.
Landlord’s contents insurance is particularly relevant if you let your property furnished, though it does also cover appliances and certain finishes such as carpets (yes, even fitted carpets) in unfurnished rentals. As policies usually have an excess and single item limit, it could make more sense to pay any repair costs yourself.
Your tenants are responsible for protecting their own belongings against loss or damage.
Rent guarantee insurance
In principle, this sounds like a great idea: the insurer pays your rent if your tenant doesn’t. But watch the fine print – policies can kick in only after a month in arrears, then take a second month as excess, and proceed to tap the deposit first. Some limit the amount of rent that can be guaranteed (£2,500 a month, for example), the number of months (typically six) or the tenant type (no students, say). Many have to be renewed every time the tenancy is renewed, even with the same tenants.
If you do buy a rent guarantee policy, pick one that includes legal expenses to evict the tenant. There is no substitute for proper checks to choose reliable tenants in the first place, but even good tenants can lose a job, fall ill or split up with a partner and stop paying rent. This insurance can give useful peace of mind (at a price).
Landlord liability insurance
What if a tenant or tradesman falls down the stairs, breaks a leg and sues you? Though the risk might be small, sums could be large – which is where landlord liability insurance comes in. This can often be added on to your buildings policy at little extra charge.
Should you use an insurance broker?
Insurance seems like an easy thing to buy online where you’ll get the lowest prices. If you miss something among the myriad terms and conditions, however, it’s just as easy to end up with an inappropriate or even invalid policy.
Our advice is to speak to a trusted broker. Though they may cost more, they can lead you through the maze of fine print to find the right policy. Plus – and this is a big plus – they can help you wade through the treacle of subsequent claims.